Two Steady Dividend Payers

12/17/2009 10:20 am EST


David Fried

Editor, The Buyback Letter

David Fried, editor of The Buyback Letter, says many investors want to limit risk, and he finds two dividend-paying stocks that can help them do that.

In the midst of [financial] turmoil, some investors have taken solace in income. Income can smooth the way though the ups and downs of the daily market.

Our main emphasis is on buyback stocks. But those stocks that both buy back and pay a substantial and regular dividend are comforting to some investors who want to know that at least they will be getting something back.

Dividend yield is simply the annual dividend divided by the current share price, expressed as a percentage. For instance, if the annual dividend is 50 cents and the current share price is $20, then the yield is: 0.50 / $20 = 0.025 = 2.5%.

Dividend yield is an important part of your rate of return on an investment. If you purchase a stock that goes up by 7% in a year while paying a 3% dividend, then you've earned 10% on your money. Reinvest your dividends into additional shares and your personal dividend yield increases.

As you know, when companies buy back their own stock, each share becomes more valuable as it represent a bigger portion of ownership than it did prior to the buyback.

GlaxoSmithKline (NYSE: GSK) is one of the world’s leading research-based pharmaceutical and healthcare companies, with an estimated 7% of the world's pharmaceutical market. Its dividend yield is 4.6%.

London-based Glaxo employs around 99,000 people in more than 100 countries. Glaxo produces medicines that treat six major disease areas—asthma, virus control, infections, mental health, diabetes, and digestive conditions.

In addition, it supplies one-quarter of the world's vaccines and is developing new treatments for cancer. Glaxo also markets other products, many of which are among the market leaders:

  • over-the-counter (OTC) medicines including Gaviscon, Tums, and Panadol
  • dental products such as Aquafresh, Sensodyne, and Macleans
  • smoking control products Nicorette/Niquitin
  • nutritional healthcare drinks such as Lucozade, Ribena, and Horlicks

(At Wednesday’s closing price of around $43, it yielded 4.7%—Editor.)

Leggett & Platt (NYSE: LEG) diversified manufacturer that conceives, designs, and produces a broad variety of engineered components and products is a 126-year-old firm with 19 business units, 19,000 employee-partners, and more than 160 manufacturing facilities located in 18 countries. Its product line started out as bedsprings and veered off into things like parts for farm machinery and retail shelving.

It is North America's leading independent manufacturer of components for residential furniture and bedding, components for office furniture, drawn steel wire, automotive seat support and lumbar systems, carpet underlay, adjustable beds, and bedding industry machinery for wire forming.

LEG generates plenty of cash, and also buys back [stock], shrinking the number of shares outstanding by 15% over the past three years. (At Wednesday’s closing price of around $20, it yielded 5.2%.)

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